A Smarter Play on Fed Rate Cuts with Cherry Hill Mortgage

Core Insights - Cherry Hill Mortgage Investment Corp. (CHMI) is positioned to benefit from anticipated Federal Reserve rate cuts through 2026, making it a noteworthy investment opportunity [1][5] Company Overview - Cherry Hill operates as a dual-sleeve strategy REIT, with a portfolio that includes 77% agency residential mortgage-backed securities (RMBS) and 23% mortgage servicing rights (MSRs) as of Q2 2025 [2] - The business model is sensitive to market interest rate changes, which can impact asset valuation positively in favorable conditions [3] Risk Management - Cherry Hill actively manages interest rate risks by utilizing a natural hedging relationship between MSRs and RMBS to mitigate volatility [3] Financial Performance - The company has fully internalized its operating structure, aiming for better alignment between management incentives and shareholder interests, which is expected to lead to annualized cost savings [4] - Cherry Hill anticipates core earnings growth from $12.1 million in 2024 to $20.2 million in 2026, supported by a strong dividend yield of 16.2% [4] Market Opportunities - With the Fed's first rate cut initiated for 2025, further cuts are expected, which will lower borrowing costs, improve refinancing costs, and enhance asset valuations for Cherry Hill [5] - Currently, Cherry Hill trades at a discount across several key valuation metrics, presenting an opportunity for investors before broader market recognition [5]